US 10-Year Treasury Yield Declines Amid Economic Concerns

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, on Sept. 19, 2024. Spencer Platt/Getty Images

The U.S. 10-year Treasury yields fell on Wednesday as worries about the economy and concerns about the impacts of Trump administration policies weigh on the minds of some investors.

On Tuesday, the yield hit 4.283 percent, the lowest level since mid-December. Yields breached this low marginally on Wednesday trading, hitting 4.281 percent. The 10-year Treasury, seen as a sign of investor sentiment on the U.S. economy, recovered later that day and was trading at 4.303 percent as of 11:10 a.m. EST. The Treasury went on an upsurge from early December, hitting a peak by mid-January. Since then, yields have dropped by around 50 basis points.

Concerns about the state of the American economy are popping up as weak economic data come in. The University of Michigan’s consumer sentiment index, for example, declined this month to its lowest level since November 2023. The reading came as a surprise, suggesting higher pessimism among consumers.

Meanwhile, a recent report from S&P Global said U.S. business activity growth “came close to stalling” this month. “New order growth also weakened sharply and business expectations for the year ahead slumped amid growing concerns and uncertainty related to federal government policies”

“Optimism about the coming year slumped to its lowest since December 2022, except for last September, when business was unsettled by uncertainty ahead of the presidential election,” the report said.

However, there are also positive signs about the state of the economy. In the first quarter of the year, optimism among U.S. CEOs surged from the previous quarter to the highest level in three years, according to a recent survey from The Conference Board.

“There was a notable increase in the share of CEOs expecting to increase investment plans and a decline in the share expecting to downsize investment plans,” said Stephanie Guichard, senior economist of global indicators at the think tank.

Fewer chief executives ranked issues such as cyberthreats, financial and economic risks, regulatory uncertainty, and supply chain disruptions as “high-impact” risks in the first quarter of 2025 compared to the fourth quarter of 2024, said Roger W. Ferguson Jr., chair emeritus of The Conference Board.

Recession Warning, Inflation Concerns

Commenting on the roughly 50 basis-point decline in 10-year Treasurys from early January, Joseph Brusuelas, chief economist at RSM US LLP, said on X that “one rarely observes this type of move especially as inflation expectations increase.”

Dave Mazza, the CEO of Roundhill Investments, said on X the “U.S. 3-month/10-year yield curve is on the verge of another inversion.”

“Previously, inversion has preceded recessions in the 2000s and, more recently, the 2020 recession during the COVID-19 pandemic. Is the U.S. economy on course for a recession or is this a false alarm?”

JP Morgan is expecting yields in developed markets to “grind lower” through 2025, according to a Dec. 17 report. “In the U.S., there could be more room for the front end of the [yield] curve to outperform as the Fed eases through the third quarter of 2025,” it said.

The bank forecasts U.S. 10-year yields to decline to a low of 4.10 percent in the third quarter of 2025, rebounding to 4.25 percent by the end of the year.

Inflationary concerns can cast a shadow over economic performance, impacting yields. When there are worries about economic growth, investors flock to treasuries as a safe haven, driving down yields amid high demand for these investments.

The 12-month annual inflation rate rose for the fourth straight time in January, hitting the 3 percent level for the first time since June last year.

During the January meeting of the policy-making Federal Open Market Committee (FOMC), Federal Reserve officials said they expect rate cuts to be paused until more progress on inflation is seen.

Despite having “eased significantly” over the past two years, “inflation remained somewhat elevated, however, relative to the committee’s 2 percent longer-run goal, and progress toward that goal had slowed over the past year,” said the minutes of the meeting.